Does the sanctioning of a building plan by a statutory development authority constitute a “supply” of goods or services liable to GST1 merely because the applicant is required to pay charges for obtaining the approval? The Karnataka High Court, in Sai Sravanthi Infra Projects Pvt. Ltd. v. State of Karnataka2, examined whether the Bangalore Development Authority (“BDA”) could collect CGST and SGST in connection with the sanctioning of a building plan. The Court held that the BDA was not entitled to collect CGST and SGST because there was no supply of goods or provision of services in sanctioning the building plan.
The judgment is significant because it treats the statutory act of sanctioning a building plan as distinct from a taxable supply for the purposes of the GST demand in question. At the same time, the Court separately examined whether the BDA possessed statutory authority to impose the underlying charges. It held that, in the circumstances of the case, the BDA lacked authority to collect scrutiny fee, ground rent and security deposit. The decision therefore involved two distinct questions: whether the authority had statutory power to impose a charge and whether the activity connected with the charge constituted a supply for GST purposes.
The petitioners owned several parcels of land at Seegehalli Village, Bidarahalli Hobli, Bengaluru East Taluk. Petitioners 2 to 4 had executed a Joint Development Agreement in favour of Petitioner No. 1, Sai Sravanthi Infra Projects Pvt. Ltd., for development of the properties.
The petitioners sought sanction of a development plan from the BDA for construction of a multi-storeyed building. In connection with the proposed sanction, the BDA’s Technical Advisor issued a demand notice dated 18 February 2022 requiring payment of various charges.
The demand comprised scrutiny fee, ground rent, development fee and plan-paper fee. CGST and SGST were separately imposed at 9 per cent each, amounting to ₹17,23,635 respectively. The demand also included labour welfare fund, security deposit and round-off. The total amount demanded was ₹4,43,00,450.
Aggrieved by the demand, the petitioners approached the Karnataka High Court under Articles 226 and 227 of the Constitution.
Statutory Authority to Impose the Charges
The petitioners challenged the BDA’s authority to collect ground rent, scrutiny fee and security deposit. They also questioned the computation of scrutiny fee by reference to the guideline value of the property under Section 45B of the Karnataka Stamp Act, 1957.
The Court examined Section 29 of the Bangalore Development Authority Act, 19763 (“BDA Act”), which enables the BDA, upon the requisite notification by the State Government, to exercise the powers of a Commissioner of a Municipal Corporation under the Karnataka Municipal Corporations Act, 1976.
The Court found that the BDA Act did not contain a provision authorising the BDA to collect the scrutiny fee, ground rent and security deposit demanded in the present case. The fact that similar charges had been imposed by the Bruhat Bengaluru Mahanagara Palike (“BBMP”) could not, by itself, confer statutory authority upon the BDA to impose those charges.
The Court relied upon its earlier decision in Mr. Sunderam Shetty v. State of Karnataka4 wherein the Court had examined the statutory basis for various levies, including ground rent, licence fee, building licence fee, scrutiny fee and security deposit. It reiterated that a fee must have authority of law and the requisite connection with the service for which it is imposed. Applying that reasoning, the Court held that the BDA could not derive authority to impose the relevant charges merely because similar levies had been imposed by the BBMP.
GST on Sanctioning of the Building Plan
The GST issue was considered separately. The petitioners contended that sanctioning a building plan by a statutory authority did not involve a supply of goods or provision of services and, consequently, CGST and SGST could not be levied.
The Court accepted the contention. In its operative order, it expressly held that the BDA “is not entitled to collect CGST and SGST as there is no supply of goods or provision of services in sanctioning the building plan.”
The finding is important because the mere existence of a monetary demand in connection with a statutory approval was not treated as sufficient to establish a taxable supply. The Court focused on the nature of the activity undertaken by the BDA, namely, the statutory sanctioning of the building plan and concluded that the activity did not amount to a supply of goods or provision of services for the purpose of the GST demand. Thus the statutory act of sanctioning the building plan, in the circumstances of the case, did not constitute a taxable supply.
The Court separately considered the labour welfare cess under the Building and Other Construction Workers’ Welfare Cess Act, 19965 and the Building and Other Construction Workers’ Welfare Cess Rules, 1998.6
The petitioners did not dispute the existence of the statutory liability to pay the cess. Their objection concerned the manner and timing of collection. They argued that the respondents could not demand the entire cess upfront as part of the charges required for sanctioning the building plan.
Relying upon Sunderam Shetty7, the Court held that the petitioners remained liable to pay the labour welfare cess but were not required to pay it upfront before construction took place. Rule 4 of the 1998 Rules prescribes the manner and time for collection of the cess.
The Court accordingly directed the BDA to collect the labour cess in accordance with Rule 4 and to raise a fresh demand within one month. The judgment therefore did not extinguish the statutory liability to pay the cess; it only rejected the manner in which the respondents had sought to collect it.
The respondents relied upon M/s Sapthagiri Shelters v. State of Karnataka8, to contend that the earlier decision concerning the relevant levies was under challenge before a Division Bench and that an order of status quo was operating.
The Court acknowledged the pending appeal. It nevertheless noted that Sapthagiri Shelters9 had quashed the statutory amendments relied upon to justify the relevant levies and had also quashed the notices issued by the BBMP demanding those charges. On this basis, the Court held that the BDA could not demand scrutiny fee, ground rent and security deposit in the circumstances of the case where the statutory basis for such levies was absent.
Importantly, the Court made its directions subject to the outcome of M/s Sapthagiri Shelters case10. The petitioners were also required to furnish an undertaking regarding payment of the relevant charges if those levies were ultimately held to be constitutionally valid in the pending appeal.
The Karnataka High Court allowed the writ petition in part. It quashed the impugned demand dated 18 February 2022 insofar as it related to scrutiny fee, ground rent and security deposit. It directed the BDA to collect the labour welfare cess in accordance with Rule 4 of the 1998 Cess Rules11 and to raise a fresh demand within one month.
The Court further held that the BDA was not entitled to collect CGST and SGST, since there was no supply of goods or provision of services in sanctioning the building plan. The BDA was directed to release the sanctioned plan after duly sanctioning it, subject to the conditions contained in the order and the outcome of W.A. No. 1226/2025.
Conclusion
The decision in Sai Sravanthi Infra Projects12 establishes a focused proposition concerning GST and statutory building-plan approvals. It demonstrates that the existence of a payment demand does not, by itself, establish either the legal power to impose the charge or the existence of a taxable supply. For developers, the decision is relevant because building approvals frequently involve multiple statutory payments. It reinforces that each levy must be examined independently: the authority imposing the charge must possess statutory power to do so, and the underlying activity must satisfy the requirements of a taxable supply before GST can be imposed.
The conclusion is that sanctioning the building plan itself did not constitute a supply of goods or provision of services. Further, the Court’s directions concerning the underlying levies remain subject to the outcome of W.A. No. 1226/2025.
Citation
Expositor(s): Adv. Vatsala Pandit
